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5 <br />authority may review the reasonableness of the basic service tier rates and issue an order to either <br />approve or deny the rates. After ninety (90) days, the franchise authority retains refund authority <br />as long as it responds within 15 days to any inquiries from the cable operator regazding its review <br />of the company's FCC 1240 documents. <br />Time Warner's FCC 1240 rate adjustments reflect the following external cost elements: <br />1) External costs for True-up Period <br />2) External casts for Projected Period <br />3) Projected cable system upgrade costs (applied to upper cable tier only) -per Social Contract <br />4) Inflation from True-up Period <br />5) Inflation for Projected Period <br />6) Franchise related costs (PEG) from True-up Period <br />7) Franchise related costs (PEG) for Projected Period <br />Analysis of Rate Increases <br />External Costs <br />The rate adjustments reflect multiple external cost elements. An external cost is an expense a <br />cable operator incurs during the normal course of business and maybe included in rate <br />calculations. External cost categories include: state and local taxes; franchise fees; costs of <br />complying with franchise requirements, including costs of providing public, educational, and <br />governmental access channels; retransmission consent fees and copyright fees incurred for the <br />carriage of broadcast signals; other programming costs; FCC regulatory fees; and costs <br />associated with channel additions. <br />True Up and Projected Periods <br />The FCC 1240 Form must be filed with the local franchise authority ninety (90) days before the <br />rates are scheduled to take effect, and may be filed no more frequently than annually. The FCC <br />1240 represents a departure from the quarterly method of updating cable rates, in that it allows <br />cable operators to estimate their future costs over a 12-month period: this is referred to as the <br />projected period.3 The FCC 1240 also allows operators to recover expenses that occurred during <br />a specified prior period of time, referred to as the true up period. If a cable operator incorrectly <br />estimates its costs far a projected period, it must correct those estimates by using the true up <br />segment of the next FCC 1240 rate filing. <br />Time Warner's projected period covers the 15 months from October 1999 to December 2000. <br />The operator's true up period covers the 12 months from October 1998 to September 1999. <br />3FCC 1210 Forms allow for the recovery of past costs, only, not future costs. Future costs are recoverable <br />through the use of the FCC 1240 Farm, only. <br />2 <br />